Tax Implications of Merchant Cash Advances

By Robert Jacovetti

When a business owner takes out a merchant cash advance, he or she is essentially pledging a portion of the business’ future sales to a cash advance provider, in exchange for lump-sum payment upfront. With the April 17th deadline for filing taxes fast-approaching, it is important that business owners keep in mind the tax implications of merchant cash advances.

Merchant Cash Advances Are Not Reported as Income

Merchant cash advances are not loans and, therefore, are not reported as income. At the time the advance is made, the money received from the cash advance is not subject to tax. However, income that is used to repay the cash advance provider is considered income and therefore taxable.

Tax Deductions on Merchant Cash Advances

Merchant cash advances are not tax-deductible, nor the payments that are used to pay back the cash advance provider.

Generally, for loans, the borrower can deduct the cost of interest on the loan. However, merchant cash advances do not charge interest; instead of cash advances charge fees. According to Ask a Lender, a business owner with a merchant cash advance may be able to deduct the fees from his or her taxes as a business expense.

As money is being deducted from the daily credit card receipts, a business owner can deduct the portion that represents the fees paid. An experienced tax professional may be able to assist business owners in calculating this amount. Business owners should consult their own professional tax and accounting advisors on individual tax matters.

For those who have fallen victim to overwhelming payments and fees or have defaulted on their merchant cash advance, it is crucial that they seek the guidance of an experienced debt relief lawyer. Robert Jacovetti of Jacovetti Law, P.C. is available to assist New York State business owners and residents in a variety of debt matters, including merchant cash advance defense. Mr. Jacovetti is a knowledgeable and compassionate attorney who fights for the legal rights and business interests of his clients. For more information or to schedule a consultation with our merchant cash advance defense lawyers, call (516) 217-4488.